A Wilmington Accountant Discusses NC Use Tax

Tax accountants think of Use Tax as a “purchased out of state” version of Sales Tax. NC made big news when it sued Amazon in an attempt to collect Sales Tax. Amazon countered by claiming compliance would violate their customer’s 1^st Amendment rights. Good drama. And the suit seems to be pressing for information on past purchases, too.

UPDATE: The Wilmington Star reported an update to the story on 2/10/2011. It focused on Amazon winning on not having to report specific titles of purchases of NC customers to the NC DOR. Which protects our first amendment rights. It was less clear as to whether Amazon will report NC purchases, by amount and customer, to the NC DOR. Probably, Amazon agreed to collect sales tax on NC purchases and remit it to the NC DOR. This is an example of government taxation transferring of burden of responsibility, along with the underlying expense of accounting and administration, to businesses.

I feel NC is just trying to force Amazon to begin collecting Sales Tax on future NC purchases and doesn’t expect any retroactive tax revenue. The recession hit our budget hard and Internet sales have expanded exponentially. NC is surely losing Sales Tax revenue.

“Because NC has an Income Tax, we seem like an unlikely candidate to lead this crusade. One would expect States without Income Taxes, like TN, to be the most concerned.”
Gary Bode, CPA
Wilmington NC accountant

Currently companies without nexus (physical facilities) in NC, don’t have to collect NC sales tax. Recently a NC Revenue agent stated that we cannot force another state to collect NC Sales Tax. Major NC retailers circumvent this obligation by setting up separate, non NC, entities for their Internet sales. It is a burden to collect and report Sales Tax, especially if you do it for all States. In NC, for example, each County has its own tax rate. And they change. Now imagine the whole country. For Amazon, this wouldn’t be a nightmare. But it would be a real deterrent for small companies trying to expand into interstate sales.

As a tax accountant in NC, I have to ask tax preparation clients if they made purchases in other States, usually by Internet, that they didn’t pay Sales Tax on. Because taxpayers are supposed to:

• Track these purchases.
• Report them on their NC Income Tax return.
• Pay Use tax (out of state Sales Tax) on them.

Apparently few folks buy things on the net, or they only deal with companies that collect NC Sales tax. In Wilmington, this used to mean every day could be a Tax Holiday, if you could sport the shipping and handling charges. But this NC lawsuit foreshadows things to come. Eventually all companies in the US, that surpass some threshold of interstate sales, will be forced to collect Sales Tax. A nightmare for small business accounting. Large specialty firms will form to handle this additional tax reporting burden. Another example of government transferring responsibility and expense of tax collection to the private sector for collecting taxes.

If you need a free initial consult with a CPA accounting firm in Wilmington NC, please call us at (910) 399-2705.

We offer a broad range of tax preparation and accounting services in a friendly mix of expertise and customer service.